Wednesday, July 15, 2009

Trickle Down Economics

I remember growing up in the eighties and hearing President Regan speak about trickle down economics. I also remember the media impressing on all of us that he was just giving favors to those greedy rich people and forgetting about the middle class. Yet, if you look back, the eighties was a time of economic fortune for many (including the middle class).

But, trickle down economics doesn't work. What effects the wealthy in our country has no bearing on the middle class or beyond. Yet, have you ever noticed that when the wealthy among us cut back on their spending, it doesn't take long for it to effect everyone else?

Fast forward to today. In Tioga County, the county next to me, Lockheed Martin laid off 600 workers yesterday. These were mostly people who had been working on the new Presidential helicopter fleet. According to local news reports the federal government had already spent $6 billion dollars on this new fleet. Tioga and Broome County benefited from the jobs that were created in the Owego facility. New buildings were built, and families moved into the area.

Here is where the trickle down economics comes in. See, to me, trickle down doesn't just mean that when the wealthy spend money it trickles down through the economic cycle creating jobs, which create wealth, and creates more jobs and so on. It also has a reverse effect when the rich don't spend.

With these 600 jobs gone from our economy, the trickle down reach spirals out, like the ripples from the pebble in the pond. These 600 people will not bring in the same income (there really is no where in this area they can find a comparable job and salary), therefore, they will pay less in State and Federal income taxes (which is another issue for another day). They may have to move from the area. If they have children, this will reduce the student population in schools which, in turn, may reduce the amount of teachers needed. Not to mention the companies that supplied them parts for the helicopters will lose a market that could cause them to lay off more people. With all of these people unemployed spending will be cut back. This will effect retail sales and result in jobs lost there, as well, creating what could be a never ending cycle.

But, as the media tried to teach us years ago, trickle down does not work. Right.